AHDB Pork UK Pig Meat Market Update

BPEX UK Pig Meat Market Update - June 2012

Deadweight pig prices continued their seasonal upward trend during April and early May.

UK Prices

However, the rate of increase was lower than during the spring of 2011 as poor weather reduced consumer demand and the strengthening of the pound relative to the euro reduced the competitiveness of British pig meat. During April, the EU?spec DAPP averaged 146.17p per kg, over four pence higher than both the March average and the average for April 2011. The price continued to rise during May, with the EU?spec DAPP reaching 149.23p per kg in the week ended 26 May.

The weakening of the euro against the pound means that in sterling terms the EU reference price has fallen steadily in recent weeks. This has helped re?establish a significant price premium for UK pigs, which stood at around 16p per kg during week ended 20 May.

The decline in carcase weights of pigs in the DAPP sample was halted during April, despite some volatility due to short weeks for the Easter and May Day Bank Holidays. Since mid?April, carcase weights have averaged above year earlier levels, partly due to better conditions this winter. At 78.7kg, the April average was 0.4kg below the March figure but 0.2kg higher than in April 2011. The average probe measurement also fell to 10.6mm.

Having been largely stable since the turn of the year, weaner prices began to fall during the second half of April and into May. High feed costs have meant that finishers are reluctant to take on higher numbers, especially as these weaners will be finished in the autumn, when slaughter pig prices tend to fall. The average price for a 30kg weaner during April was £45.71 per head, almost identical to the March average but still slightly above prices in April 2011. However, in early May the price fell below its level a year earlier for the first time since November.

Cull sow prices have remained high as supplies on the continent remain tight. However, the weakening of the euro has led to some easing back of the price since late March as the GB price tends to be close to the price in Germany, the main market for sow meat. The average April deadweight price was 122p per kg, less than a penny higher than the March average but still 18p higher than a year earlier.

EU Prices

European finished pig prices rose slowly during April 2012 after a period of volatility earlier in the year. Supplies have been tight in some, but not all, Member States but this has been offset by subdued consumer demand due to a combination of the difficult economic situation and poor weather conditions. The April EU average pig reference price of €163.48 per 100kg dw was about one per cent higher than in March but was still six per cent higher than a year earlier. Prices peaked in late April at their highest level since 2008 but have since fallen back slightly to reach €161.55 per 100kg dw in the week ended 20 May.

Although prices have been largely stable in euro terms, the weakening of the euro against the pound means that prices in most Member States have fallen in sterling terms over recent weeks.

EU weaner prices reached a new record of €51.70 per head in week ended 22 April, the highest figure recorded since the expansion of the EU in 2004. Since then prices have eased a little as feed prices remain high; this is also a seasonal development.

The steady increase in EU cull sow prices continued throughout April before easing back in early May. Prices in April were at their highest level since October 2008.

UK Slaughterings and Pig Meat Supplies

UK clean pig slaughterings in April 2012 totalled 934,000 head, five per cent higher than in April 2011 when pig numbers were somewhat reduced following the cold weather earlier in their life cycle. Both England and Wales and Northern Ireland recorded increased clean pig slaughterings, up by six and seven per cent respectively, but Scottish throughputs were down by four per cent, reflecting the reduction in the Scottish herd recorded in the December census. Nevertheless, the number of pigs slaughtered in Scotland in the first four months of 2012 was still seven per cent higher than a year earlier. Across the UK, the total number of clean pigs slaughtered in the first four months of the year was three per cent up year on year at 3.41 million head.

Slaughterings of cull sows and boars during April totalled 24,500 head, almost all in England. This was four per cent higher than AHDB’s estimate for April 2011. Throughputs for the first four months of the year were two per cent above those for the same period last year as producers continue to replace sows at a higher rate.

UK pork imports remained subdued during March, continuing the trend from the previous two months. Shipments were 13 per cent lower than in March 2011 at 27,200 tonnes, although this does represent a modest recovery from February’s low point. Germany and Spain continued their strong performance, while Denmark also shipped more pork than a year earlier. All other major suppliers sent lower quantities to the UK. Fresh/chilled loins continued to suffer, with shipments down by over 70 per cent year on year. However, imports of chilled boneless cuts and bellies were higher than a year earlier.

UK pork imports during the first quarter were 15 per cent down on the same period last year, with Germany and Spain the only suppliers shipping more product. This came despite only a modest increase in unit prices, up by three per cent to £1.88 per kg. Among major categories, only fresh boneless cuts and frozen bellies were imported in larger quantities.

UK pork imports during the first quarter were 15 per cent down on the same period last year, with Germany and Spain the only suppliers shipping more product. This came despite only a modest increase in unit prices, up by three per cent to £1.88 per kg. Among major categories, only fresh boneless cuts and frozen bellies were imported in larger quantities.

Bacon imports to the UK were also lower, with March shipments totalling 25,000 tonnes, eight per cent lower than in March 2011. This is a slightly smaller fall than in the previous two months, with the figure for the first quarter ten per cent lower than a year earlier. The March fall was driven by a 17 per cent drop in shipments from the Netherlands, partly offset by small rises from the two other major suppliers, Denmark and Germany. Processed pig meat imports continued to perform strongly, up 75 per cent on the year to 15,300 tonnes in March 2012. Denmark, Ireland and Germany all more than doubled their shipments. Sausage imports were up by two per cent on March 2011 at 8,900 tonnes.

UK exports of pork in March were four per cent lower than a year earlier at 11,800 tonnes, although with higher prices the value of exports rose by nine per cent to £15.2 million. Shipments to Germany, Hong Kong and the Netherlands were all lower, while Ireland and Denmark were the main destinations taking increased quantities. Despite the drop in March, exports for the year to date were still one per cent higher than in the first quarter of 2011. In contrast, offal exports remained strong during March, up by 21 per cent year on year to 3,800 tonnes. This was despite a fall in shipments to Hong Kong, the largest market, as several EU Member States increased the amount of UK pig offal they received.

Feed Prices

As of 24 May, UK LIFFE wheat futures for November 2012 delivery finished one pound up from the beginning of the month at £156.15 per tonne. This is still over £15 lower than the value of old crop futures for July delivery. Earlier in the month, following the first USDA forecasts for 2012/13, new crop wheat was trading at a three month low of £147.70 per tonne. USDA projected the 2012/13 wheat stocks?to?use ratio would only be slightly down from 2011/12 at 27.4 per cent, indicating relatively comfortable supply. Favourable weather and expectations of potentially record yields for US newcrop, also helped reduce LIFFE wheat futures. Strengthening sterling and the Eurozone crisis caused further downward pressure.

Prices rallied later in the month over concerns of dry weather hurting yields in Southern US states. There have also been reports of dry weather in Russia which could impact wheat yields, although rain is expected over the coming days. Elsewhere there are also concerns over dry weather in the Australian grain belt which is delaying plantings, although it is too early to quantify losses. Australia is forecast to become the second largest wheat exporter this season.

Favourable crop projections from the USDA earlier this month meant that, as of 24 May, CBOT maize futures have decreased by over 30 dollars to $202.76 per tonne. Nearby wheat futures are now trading at noticeable premiums to maize for the first time in 12 months. Global maize production is expected to be up 75 million tonnes from the current season to 946 million tonnes in 2012/13, with the US expected to produce a record 375 million tonnes next season. However, July will be an important month for yield formation to see if the expected high output is realised. Supportive to prices is the tight maize situation in China which, despite a record crop, is expected to import 60 per cent more maize in 2012/13.

As of 24 May soyabean prices on the CBOT were down to $462.1 per tonnes. Movements have been driven by adjustments by fund investors rather than changes demand and supply. Although the soya meal price increased from £338.50 per tonne in the beginning of the month to £353 per tonne, this can be attributed to movements in the exchange rates. The fundamentals remain the same; the South American drought has caused significant reductions in soyabean output. In May, the Agricultural Ministry of Argentina reduce its 2011/12 soyabean harvest forecast to 41.29 million tonnes, compared with the 48.9 million tonnes produced last year. Forecasters AgRural decreased Brazil’s output forecast to 66.2 million tonnes from their March estimate of 66.7 million tonnes.

Import demand from Asian countries, particularly China, continues to rise. This month China is expected to import between 5.7 and 6 million tonnes, up from the 4.88 million tonnes imported in April. Attention is now on the US, where a mild winter and favourable conditions has meant that the wheat crop is progressing at a rapid pace. With high soyabean prices the incentive is there for farmers to double crop with soyabean immediately following the wheat harvest, though the extent to which farmers will do so in light of the recent dry weather is unclear.

Latest AHDB estimates for the full cost of production for finished pigs show a further increase. Estimated costs rose by two pence per kg between March and April, taking the cost to nearly 165p per kg dw. This is nearly 19 pence higher than the monthly DAPP figure, equivalent to an average loss of about £15 per pig. Nevertheless, this is a slight improvement on the situation in March as the DAPP has risen faster than the cost of production.

A further rise in costs of three pence per kg is anticipated during May suggesting there is unlikely to be any significant reduction in these losses in the near future. The main reason for the increase in costs is the rising price of major feed components on the global market.

Consumption

In the 12 weeks to 13 May 2012, expenditure on fresh and frozen pork was five per cent higher than a year earlier but the quantity purchased was three per cent lower. Leg and shoulder roasting joints recorded the largest purchase declines, down fifteen and seventeen per cent respectively. This has been driven by a reduction in promotional activity compared to last year. The average price paid by consumers has increased by eight per cent compared with last year. Pork belly and loin roasting joints were the two cuts which recorded the strongest purchase growth year?on?year with increases of six per cent and 41 per cent respectively.

Over the past 4?week period fresh and frozen pork purchases were one per cent higher than a year earlier. Expenditure increased by seven per cent compared to the previous year as prices were higher. One of the best performing cuts was loin roasting joints which saw purchases more than double compared to last year. Pork shoulder joints also recorded positive purchase growth, rising five per cent. Purchases of Leg roasting joints declined 35 per cent compared to last year. This is heavily influenced by the fact the comparable period last year included Easter, when leg roasting joints tend to be popular; sales increased during the previous period which included Easter this year.

The past 12?week period has seen bacon expenditure increase by nine per cent and purchases increase by four per cent compared with the previous year. There have been purchase increases across all bacon cuts. Bacon chops have achieved the strongest year on year growth with a 39 percent increase. However bacon rashers remain the largest sector and recorded a two per cent purchase increase compared to last year.

In the latest 4?week period, pork sausages and pork pies both recorded significant declines from last year, with purchases down 14 and 15 per cent respectively. This has been largely influenced by the cold and wet weather during the latest period, which contrasted with the hot weather and the royal wedding which fell in the equivalent four week period in 2011. Other popular picnic items such as sausage rolls also declined, with purchases down 21 per cent.

New figures from NPD Crest show that pig meat performed well in terms of out of home consumption over the year to March 2012. Overall, pig meat servings were up by five per cent on a year earlier, equivalent to an extra 88 million servings. This was mostly made up by increases in servings of bacon and sausages, up eight per cent and five per cent respectively. Ham was the only pig meat product with reduced out of home servings, down by one per cent.